.png)
.png)
It is vital that any new controlled foreign companies (CFC) regime is well defined and easy to administer, the Institute of Directors (IoD) has said.
The Government has been consulting on a revamp of the method by which it taxes profits made by overseas arms of UK-based multinationals – and the IoD suggested that this will be a ‘real test of business-friendly taxation’.
The professional body said the consultation, which closed yesterday, had been well run, but final legislation will need to be honed ‘at the right pace’. A consultation on the specifics of the new regime, is necessary, said the IoD, adding that legislation should be drafted in December.
The organisation urged ministers to ensure a new CFC system uses clearly defined terms: ‘European court decisions mean the regime can only target “wholly artificial arrangements”. We need to know precisely what will count as “wholly artificial”. How much tax planning will be caught?’
The IoD – which boasts around 45,000 members – also expressed concern that a new regime might impose an artificial boundary between routine group cash management and lending between group companies, when in reality they form a continuum.
The body went on to recommend that a new arrangement for CFCs should make low-tax jurisdictions easily identifiable by having a test that is based on the headline tax rate, with a short list of countries that are caught regardless of their headline rates.
The IoD’s head of taxation, Richard Baron, remarked, ‘The controlled foreign companies regime is a pretty technical topic, but there are lessons for tax policy more generally.
‘Most importantly, the tax system must recognise business realities. It must not impose artificial divisions between types of transaction that, in commercial terms, cannot sensibly be separated, and it must not be too expensive to administer. Anything beyond the absolute minimum administrative burden is sheer waste.’
